United States District Court, Northern District of Illinois, E.D
May 13, 1969
SEARS ROEBUCK AND COMPANY, A CORPORATION, PLAINTIFF,
ZURICH INSURANCE COMPANY, AN INSURANCE CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Napoli, District Judge.
MEMORANDUM OPINION AND ORDER
Sears Roebuck and Co. has brought this action in diversity
under the Declaratory Judgment Act, 28 U.S.C. § 2201, to have its
rights determined with respect to the defendant Zurich Insurance
Co. The plaintiff alleges that it is within the coverage of a
contract of insurance written by the defendant which requires the
defendant to provide a defense and indemnify Sears for any
damages for which it is held liable in a suit now pending against
Sears in the United States District Court for the Northern
District of Texas. The matter is before the Court on defendant's
motion to dismiss the complaint.
Warwick Electronics, Inc., a manufacturer who supplies Sears
with various products for resale, is the insured under a policy
written by Zurich Insurance Co. That policy insures Warwick
against loss from liability imposed on account of personal injury
or property damage caused by products manufactured, sold or
distributed by Warwick. Zurich is also required to defend any
suit brought on account of an accident covered by the policy. The
contract contains a vendors' endorsement which extends defense
and liability coverage to Sears.
A Warwick product was sold by Sears in Lubbock, Texas to one
Glenn Coulter. After servicing by Sears, the product allegedly
caused a fire which resulted in a lawsuit by Coulter against
Sears. After refusal by Zurich to defend that suit, Sears brought
this action to determine its rights under the vendors'
endorsement. As substantive defenses Zurich contends that its
policy does not cover occurrences arising out of services or
repairs performed by Sears and that notice of the accident was
not given as soon as practicable as required by the policy. This
motion to dismiss, however, is based on the contention that this
Court should not accept jurisdiction.
It is elementary that the question of relief under the
Declaratory Judgment Act is addressed to the discretion of the
court. Brillhart v. Excess Ins. Co., 316 U.S. 491, 494, 62 S.Ct.
1173, 86 L.Ed. 1620 (1942). It is equally true that the statute
should be liberally construed in order to effectuate the purpose
for which the Act was intended, specifically to alleviate
uncertainty with respect to legal rights and obligations.
Aetna Casualty and Surety Co. v. Quarles, 92 F.2d 321, 325 (4th
The plaintiff here is seeking a declaration of its rights under
a vendors' endorsement of an insurance contract in order to
establish that it is entitled to defense and indemnity by the
defendant in a property damage action that is now pending against
the plaintiff. This case is substantially the same as Sears
Roebuck & Co. v. American Mutual Liability Ins. Co., 372 F.2d 435
(7th Cir. 1967). It was there held an improper exercise of
discretion for the District Court to dismiss an action for a
declaration that an insurer was obliged to provide a defense and
pay any judgment in a suit pending against the plaintiff on the
basis of a vendors' endorsement in an insurance contract. In
examining the scope of judicial discretion the Court stated:
Declaratory judgment should not be granted to try
particular issues without settling the entire
controversy, or to interfere with an action already
instituted. (Citation omitted). But the pendency of
another suit is not a sufficient reason to decline
declaratory jurisdiction if that suit will not
necessarily determine the controversy between the
parties. Yellow Cab Co. v. City of Chicago, 7 Cir.,
186 F.2d 946, 951 (1951). The standards generally to
be applied in exercising discretion to hear a
declaratory judgment action are whether a declaratory
judgment will settle the particular controversy and
clarify the legal relations in issue. Samuel Goldwyn,
Inc. v. United Artists Corporation, 3 Cir.,
113 F.2d 703, 709 (1940).
* * * Discretion must be exercised for a reason
related to the purposes of the Act; it must relate to
the clarification of legal issues and the settlement
of controversies or to some overriding policy
consideration such as abstention in state matters,
inconvenience to parties, or improper use of the
declaratory judgment action.
(Citation omitted). Id. 372 F.2d at 438.
There can be no doubt that the relief sought here is entirely
proper under the provisions and intent of the statute. Sears
Roebuck & Co. v. American Mutual Liability Ins. Co., supra;
Maryland Casualty Co. v. Consumers Finance Service, 101 F.2d 514
(3rd Cir. 1938). The question in controversy is whether the
defendant's obligations under an insurance contract extends to
the plaintiff in the circumstances which gave rise to the Texas
litigation. This action will settle that controversy and the
property damage suit by Coulter testing Sears' liability will
The defendant attempts to distinguish the American Mutual case
on the basis of convenience of the forum by noting that the
pending litigation which gave rise to that suit was in the
Circuit Court of Cook County, Illinois. Convenience of the
parties is indeed a factor to be considered. However, merely
noting that the pending state court suit in the American Mutual
case was in the same district as the declaratory judgment action
and that in this case it is not, does not make out a case of
inconvenience. The defendant has not specifically alleged that
this forum is inconvenient. Moreover, the facts now before this
Court indicate otherwise. The defendant is doing business in this
district and Chicago is the plaintiff's principal place of
business. It has not been alleged that the defendant is doing
business in Texas or that proper venue would lie there or
elsewhere. Since it is this Court's opinion that the plaintiff is
entitled to a declaration of its rights, relief will not be
declined without some clear showing of inconvenience.
It has also been suggested that the issues in this case would
be the same as in the Coulter suit. The damage suit against Sears
will determine Sears' liability to a consumer for an alleged
defective product or improper servicing. This suit will determine
is entitled to coverage under the insurance contract between
Warwick and Zurich. The issues are not the same.
It is true that the defenses raised by Zurich may require the
overlapping of evidence. The Texas suit charges Sears with
improper servicing as well as use of defective materials, failure
to discover defects and failure to warn of defects. Zurich, among
other things, alleges that the policy does not cover accidents
arising out of improper servicing by Sears. Therefore it may be
necessary for this Court to determine whether the accident
resulted from defect or servicing.
However, in order to decline to grant the declaratory judgment
it is not enough that the pending Texas suit might settle certain
issues raised here. It must be apparent that the judgment in that
case would necessarily settle those issues. Maryland Casualty Co.
v. Consumer Finance Service, supra, 101 F.2d at 515; Sears
Roebuck & Co. v. American Mutual Liability Ins. Co., supra, 372
F.2d at 438. The possibility is apparent that a finding of
liability against Sears could be made without a specific finding
that it resulted from a defective product or from improper
servicing or both. This is equally true if the judgment is for
the defendant. In the latter event, Sears would still be entitled
to a determination of the question of defense by Zurich and that
potentiality does not affect this Court's obligation to hear the
case because of failure of jurisdictional amount. Further, even
if the Coulter action were to specifically base a judgment for
the plaintiff on defective product, the questions raised by
Zurich's other substantive defenses, such as failure to notify
promptly, would go unanswered.
Finally the Court notes three recent decisions in this District
to the contrary. Gulf Ins. Co. v. Dooley, 286 F. Supp. 16 (N.D.
Ill. 1968); Illinois Conference of the United Church of Christ v.
Fidelity and Casualty Ins. Co., No. 68 C 1787 (N.D. Ill. February
13, 1968); Sears Roebuck & Co. v. Zurich Ins. Co., No. 68 C 1893
(N.D. Ill. February 14, 1969). The appeal in one of these cases
was dismissed on plaintiff's motion and the appeal of another is
now pending. To the extent that they are in point this Court
chooses not to follow them. It is our opinion that the American
Mutual case is controlling and that no legally distinction has
For the reasons stated above, the defendant's motion to dismiss
shall be, and the same is hereby ordered denied.
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